This just in: The stock market will go to 12,000–unless it falls by 50 percent to 60 percent.
Al Gore didn’t show up at last night’s editorialists’ dinner after all. His plane couldn’t land in Zurich and no U.S.-certified transportation was available from Geneva, to which he was diverted, so he flew back to Zurich, started out in the specially flown-in vice presidential motorcade, and got bogged down in the snow. Finally, throwing caution to the wind, the vice president boarded a train for Davos, arriving only in time to brush up his plenary speech for Friday and go to bed. He should have flown by Swiss Air and taken the indomitable bus.
On the other hand, we got an entertaining discussion of the world economy by the vaudeville team of Ken Courtis and David Hale, who, according to WEF ground rules, I cite with their permission.
According to Hale, global chief economist at the Zurich Insurance Group USA, America owes a great debt to the Asian financial crisis. Absent its downward pressure, Alan Greenspan would have had to raise interest rates, Americans wouldn’t have enjoyed the equivalent of a huge tax cut in the form of falling commodity (especially oil) prices, and so wouldn’t have been able (with the help of the heightened inflow of frightened foreign capital) to go on bidding up the stock market while borrowing up to their ears in order to buy everything in sight.
Of course, everything wasn’t coming up roses. “History may write,” Hale said, “that Monica Lewinsky was deflationary.” That’s because a weakened president was unable to persuade Congress to provide the extra funds to the International Monetary Fund that, Hale believes, might have kept Russia afloat. And unless commodity prices revive, not only Russia but also the Middle East and Africa will be in the doldrums for a long time to come.
“The Achilles’ heel of America’s Goldilocks economy,” says Courtis, the chief economist and strategist at Deutsche Bank Japan, “is that it is entirely financed with other people’s money.” Every day markets are open, the United States borrows $1 billion in cold cash to sustain the buying spree now undergirding the world economy. When Asia starts to recover in earnest, Europe strengthens, and the vast extent of world productive overcapacity becomes fully apparent, “Goldilocks is going to take a bob.” But meanwhile, we are in a “phase of remission” that should last at least through the year.
So there are worries. But by and large Candide’s Dr. Pangloss was right: Everything that happens happens for the best in this best of all possible global economies. Unless it doesn’t. In which case you should be prepared to dump yen, lighten up on dollars, and buy a bunch of euros. And maybe load up on cheap Asian stocks for the long haul.
These notes of qualified optimism–or qualified wariness, depending on where you put the emphasis–are repeated throughout Saturday’s sessions. Everyone is humming a Third Way Theme: Free markets are the most efficient and countries must adopt transparent and disciplined fiscal, monetary, and financial sector policies. In the end this will maximize social welfare, but markets can overshoot and even the best-conditioned markets can suffer stresses and strains. Government must intervene to cushion shocks and reduce inequalities within and among nations. No one is very specific about how this is to be done–though other people’s proposals are often called into question.
By afternoon, the temperature has dropped well below freezing, but this has the side benefit of stopping the snow. In the sunlight, the mountains that cuddle Davos are spectacular. Walking is much easier–unless you are hit by the mini-blizzard produced when a 2 foot deep snowdrift avalanches from a roof or bough.
At the 5 p.m. session, in which I moderate a table of 15 or so smart industrialists, bankers, think tankers, and journalists, we are joined for 30-minute periods first by Russian presidential aspirant Grigory Yavlinsky, and then by Hong Kong’s new Chief Executive, Tung Chee Hwa (call me C.H., he says amiably). Both speak fluent English, both talk of the rule of law and economic “transparency” in ways pleasing to Western ears. Unfortunately, the rules of WEF law do not allow me to quote them–a shame, as Yavlinsky, especially, was amusing as well as wise.
At dinner we are served Britain’s Chancellor of the Exchequer Gordon Brown (who sounds rather like Sean Connery) and the U.S. Deputy Treasury Secretary Larry Summers. More guarded optimism, more Third Wayism–and some jolly good jokes. I mean to go to bed early but New York Times columnist Bill Safire (the keenest Davos observer I know) persuades me to go for a “nightcap with Newt” (and also former California Gov. Pete Wilson). You can’t help liking Gingrich. He talks frankly of his mystification about the last election and then launches into earnest and detailed policy analysis. Unfortunately I am too tired to focus–and it’s getting awfully cold outside.
Before I turn in, I would like to say a word on behalf of Swiss plumbing. Specifically, showers. Instead of being equipped with the ghastly one-lever mechanisms that now haunt most U.S. hotel showers, the Swiss shower is sensibly equipped with two knobs. One you can set–and leave–at precisely the temperature that suits you, something in the vicinity of 40 degrees Celsius. The other controls the water flow, enabling you to turn the shower on and off while neither freezing nor scalding yourself. You’d think some Yank woulda thought of it.